Assuming your walls have paint on them, you'll drive yourself insane trying to sand them smooth. In contrast putting up new drywall would also be a time consuming unnecessary task. My professional recommendation would be to sand the paint a little just to roughen up the surface and then skim coat the walls with a lightweight compound. As long as you sand the walls before you skim you'll achieve the same smooth results as new drywall in half the time and cost and not to mention the mess.